Morning in Arizona

The Headline Animator

Tuesday, April 19, 2016

Bumpy Ride for Investors

Charles Schwab: On the Market

Posted: 4/19/2016 4:15 PM ET

Bumpy Ride for Investors

U.S. equities finished mixed in a choppy session with a sundry of
earnings reports pitting weakness in the tech sector on IBM's
disappointing outlook, with a rebound in crude oil prices, which
benefitted the energy space. Meanwhile, financials got a boost from
Goldman's Sachs beat, but Netflix's softer-than-expected guidance also
weighed on the Nasdaq. Treasuries were lower, despite a disappointing
housing construction report, gold prices jumped, and the U.S. dollar was
lower.

The Dow Jones Industrial Average (DJIA) rose 49 points (0.3%) to 18,054,
the S&P 500 Index added 6 points (0.3%) to 2,101, while the Nasdaq
Composite lost 20 points (0.4%) to 4,960. In moderate volume, 886
million shares were traded on the NYSE and 1.8 billion shares changed
hands on the Nasdaq. WTI crude oil rose $1.28 to $42.47 per barrel,
wholesale gasoline was $0.04 higher at $1.48 per gallon and the
Bloomberg gold spot price jumped $18.87 to $1,251.36 per ounce.
Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major
world currencies—was 0.5% lower at 94.01.

Dow member Goldman Sachs Group Inc.
(GS $163) reported 1Q earnings-per-share (EPS) of $2.68, above the
$2.42 FactSet estimate, as revenues dropped 40.3% year-over-year (y/y)
to $6.3 billion, below the projected $6.8 billion. The company said the
operating environment this quarter presented a broad range of
challenges, resulting in headwinds across virtually every one of its
businesses. Shares traded higher.

Netflix Inc.
(NFLX $94) posted 1Q EPS of $0.06, two cents north of forecasts, as
revenues rose 24.4% y/y to $2.0 billion, roughly in line with estimates.
However, the company issued softer-than-expected 2Q EPS guidance, while
its outlooks for domestic and international streaming subscriber
additions also missed expectations. NFLX was sharply lower.

Housing starts (chart)
for March fell 8.8% month-over-month (m/m) to an annual pace of
1,089,000 units, compared to the Bloomberg forecast of a 1,166,000 unit
rate. February's starts were upwardly revised to an annual pace of
1,194,000. Building permits, one of the leading indicators
tracked by the Conference Board as it is a gauge of future construction,
dropped 7.7% m/m in March to an annual rate of 1,086,000, after
February's upward revision to a 1,177,000 rate, and below the expected
annual pace of 1,200,000 units. Activity for single-family and
multi-family structures both declined in March.

The report is historically volatile and some economists are cautioning
about reading too much into one month's worth of data, while yesterday's
NAHB homebuilder sentiment report pointed out that builders remain
cautiously optimistic about construction growth in 2016. Schwab's
Director of Market and Sector Analysis, Brad Sorensen, CFA, holds an
outperform rating on financials in his latest Schwab Sector Views: Don't Ignore the Big Picture,
noting that mortgage demand appears to be healthy. Also, interest rates
continue to be quite low and the high rental rates in some areas of the
country provide the incentive for home buying. Meanwhile, Schwab's
Chief Investment Strategist Liz Ann Sonders notes in her article, Recession: Your Time is Gonna Come … But Not Yet, although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low. Read more at www.schwab.com/marketinsight and follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Tomorrow, we will get a look at the broadest measure of the U.S. housing sales market, courtesy of existing home sales, projected to rise 4.0% m/m in March to an annual rate of 5.28 million units, while MBA Mortgage Applications will also be released (economic calendar).

European equities finished higher, with some resiliency in crude oil
prices helping buoy sentiment and the energy sector, while mostly upbeat
earnings reports offered some support. jumped more than expected for
April, reaching the highest level this year. The euro gained ground on
the U.S. dollar, while bond yields in the region moved to the upside.
The latest Schwab Market Perspective: The Soft and Frustrating Middle,
notes that just as we believe earnings in the U.S. are important to
further domestic stock market gains, we also think the return of
earnings growth is an important ingredient in getting global stocks to
begin to move materially higher once again. Growth in global earnings is
driven by economic growth and there appears to have been little of
either in the first quarter. While still stuck in the middle ground here
as well, potentially boding well for the future; it appears that the
global economy may be showing signs of improvement, particularly in
manufacturing where economic weakness has been focused. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Stocks in Asia finished mostly higher as crude oil prices showed some
resiliency in the face of the weekend's disappointing production meeting
between major world oil producers, while emerging markets continued to
rally, with India's market gaining solid ground. Japanese equities
jumped as the markets rebounded sharply from yesterday's drop that was
exacerbated by last week's earthquakes in southern Japan, and as the
yen, which has rallied as of late, weakened to help lift export-related
stocks. Chinese securities and those traded in Hong Kong advanced, with
markets in both countries snapping two-session losing streaks, buoyed by
strength in basic materials and the energy sector. Australian stocks
gained ground, led by resource-related issues, even as the minutes from
the Reserve Bank of Australia's monetary policy meeting earlier this
month noted that although "very accommodative" policy is appropriate,
the strength of the Australian dollar could complicate the economy's
rebalancing toward the non-mining sectors. Finally, South Korean
listings ticked higher, with the Bank of Korea holding its monetary
policy stance unchanged.

The international economic calendar for tomorrow will be fairly light,
with PPI from South Korea and trade data from Japan being reported from
the Asia-Pacific region, while from across the pond will come PPI from
Germany and employment data from the U.K.

Schwab Center for Financial Research ("SCFR") is a division of Charles
Schwab & Co., Inc. The information contained herein is obtained from
third-party sources and believed to be reliable, but its accuracy or
completeness is not guaranteed. This report is for informational
purposes only and is not a solicitation, or a recommendation that any
particular investor should purchase or sell any particular security. The
investment information mentioned here may not be suitable for everyone.
Each investor needs to review an investment strategy for his or her own
particular situation before making any investment decision. All
expressions of opinions are subject to change without notice in reaction
to shifting market conditions.

Disclaimer: The material appearing on this site is based on data and information from sources we believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete. Opinions and projections, both our own and those of others, reflect views as of dates indicated and are subject to change without notice. The contributions and opinions of others do not necessarily reflect the views of Marvin Clark, Monsoon Wealth Management, or Fixed Income Daily. Nothing appearing on this site should be considered a recommendation to buy or to sell any security or related financial instrument. Investors should discuss any investment with their personal investment counsel. Past performance does not guarantee future results.